Policy makers are said to "accommodate" an adverse supply shock if they
A) fail to respond to the adverse supply shock and allow the economy to adjust on its own.
B) respond to the adverse supply shock by decreasing aggregate demand, which lowers prices.
C) respond to the adverse supply shock by decreasing short-run aggregate supply.
D) respond to the adverse supply shock by increasing aggregate demand, which further raises prices.

Question

Quizplus · Accepted Answer

Policy makers "accommodate" an adverse supply shock by increasing aggregate demand to counteract the negative effects on output, even though this may lead to higher prices.

Policy Makers Are Said to "Accommodate" an Adverse Supply Shock